OECD-FAO Business Handbook on Deforestation and Due Diligence in Agricultural Supply Chains

Step 1: Establish a policy on deforestation and strong management systems

Abstract

Step 1 of the OECD-FAO Guidance is about establishing strong corporate management systems and policies, which in turn support all the subsequent steps of the OECD-FAO due diligence framework. This chapter outlines how Step 1 can help support companies’ deforestation commitments.

Strategic questions for enterprises

• What level of ambition do we as a company have on deforestation? What is our definition of forests? Have we considered a deforestation cut-off date in our sourcing practices (see Glossary for definitions)?

• Does our policy meet or exceed legislation regarding forest protection in our home country, country of production and key export markets?

• Does our policy meet expectations from investors, legal advisors, local communities and civil society?

• Do senior executives in the company (including the Board) understand: (1) the commitments on deforestation the company has; (2) the ramifications of choosing a particular policy; (3) the systems required to implement such a policy (e.g. revising existing contracts and relationships, budget and personnel implications); and (4) the costs of not addressing deforestation for the company (direct or indirect impacts on production and revenues), and globally (in terms of climate change and biodiversity loss and the associated medium- and long-term insecurity of supply of agricultural commodities)?

• Has a lead focal point in the company been appointed to co‑ordinate and manage the implementation of the due diligence approach to responsible sourcing (including on deforestation commitments), together with other company departments (e.g. legal, public/corporate affairs, procurement, marketing)? Is there adequate communication between them?

• Which suppliers and other stakeholders should we engage with in developing our commitments against deforestation? Do we have vulnerable producers, such as smallholders, in our supply chains that require specific support with compliance with the company’s policy and regulatory requirements?

• Are company key performance indicators (KPIs) linked to achieving deforestation-related due diligence objectives part of our management systems?

• Which external due diligence systems or processes are we using to support our internal due diligence management (e.g. OECD-FAO Guidance, industry codes, commodity certification systems/schemes, audit protocols, etc.)?

Establish or update sustainability policies on deforestation and integrate into enterprise processes

The following key elements have been identified as important when developing a policy on deforestation:

• The policy applies across the entire company (including its subsidiaries) and its supply chains and ensures that all relevant departments work together to deliver a common commitment towards eliminating deforestation through responsible production and sourcing practices.

• It sets measurable targets for reducing deforestation and the risk of deforestation acceptable in the enterprise’s operations, supply chains and business relationships. For example, the objective can be to achieve zero deforestation, or zero illegal deforestation, or a reduction in deforestation levels to be achieved by a specified date. The definition of the objective includes clear time‑bound targets and cut-off dates and definitions of terms such as “forest”, “deforestation” and “forest degradation” (see Glossary for definitions).

• Targets and definitions can often be derived from collective commitments the enterprise has entered into, international and national agreements and commitments, national legislation, industry association guidelines, the expectations of investors, or voluntary sustainability standards in certification systems (See Annex A for further resources).

• The policy is risk-based, meaning it addresses the most significant risks and impacts first, taking into consideration likelihood of an impact as well as the scale, scope and irremediable aspects of the impact.

• The policy is reviewed and adapted on a regular basis in light of new sourcing areas, shifting patterns of deforestation and increasing knowledge about deforestation risks in the supply chain and international standards and national legislation.

Embed policy on deforestation in oversight bodies and management systems and different company functions

Practices should be consistent throughout the operations of the enterprise, including in all the departments or units which may take decisions affecting commodities and products potentially associated with deforestation, including in particular the purchasing and procurement functions. The deforestation-related procedures should be consistent with, and integrated within, any other due diligence policies the enterprise may have.

Incorporate expectations and policies into engagement with suppliers and other business relationships

Since due diligence applies throughout an enterprise’s supply chains and business relationships as well as to its own operations, regular communication with suppliers and other business partners is critical. For products and supply chains with associated high risk of deforestation, the enterprise should:

• Communicate key aspects of its policy on deforestation to suppliers and other relevant business relationships. Long-term relationships with business partners can increase leverage to encourage the adoption of such a policy and improve transparency.

• Include conditions and expectations on deforestation due diligence in supplier or business relationship contracts, supplier codes of conduct or other forms of written agreements, tailored to suppliers’ capacities.

• Develop and implement pre‑qualification processes on deforestation due diligence for suppliers and other business relationships, where feasible, adapting such processes to the specific risks and circumstances they face.

• Provide adequate resources, capacity-building and training to suppliers and other business relationships to help them understand and apply the policy and implement due diligence in relation to deforestation. This could include, for example, a standardised reporting framework for suppliers. Some suppliers, such as smallholder farmers, will need greater levels of support than others.

• Seek to understand and address barriers arising from the enterprise’s way of doing business that may impede the ability of suppliers and other business relationships to implement the due diligence policy in relation to deforestation, such as the enterprise’s purchasing practices and commercial incentives.

Enterprises may face practical and legal limitations to how they can influence or affect business relationships to prevent, cease, or mitigate adverse impacts on forests, or to remedy them. Enterprises can seek to overcome these challenges to influence business relationships through contractual arrangements, pre‑qualification requirements, voting trusts, license or franchise agreements, and also through collaborative efforts to pool leverage in industry associations or cross-sectoral initiatives.

Implementation plans developed in co‑ordination with business partners and involving, where appropriate, local and central governments, international organisations, local communities and civil society, can also improve compliance, in particular by offering capacity-building and training. Industry associations and multi-stakeholder initiatives may often be able to provide support for many of the steps described above.

Establish control systems along the supply chain

Establishing systems to enable the enterprise to monitor the implementation and impacts of its policy on deforestation is critical to the credibility and effectiveness of the policy and to good relationships with stakeholders, including investors and governments. This entails:

• Creating verification procedures to undertake regular independent and transparent reviews of compliance with the policy; this may include ongoing supplier engagement and monitoring, as well as internal and independent third-party audits (the latter is preferred where the risk of association with deforestation is higher), and covers both the enterprise and its suppliers.

• Establishing monitoring and control systems for the chains of custody of the commodities and products the enterprises identify as potentially associated with deforestation. This is described in more detail in Step 4 of the OECD-FAO Guidance (verifying due diligence).

Typically, these steps will take place at the same time, or soon after the enterprise has started to conduct supply chain mapping as per Step 2 of the OECD-FAO Guidance (identifying risks).

Establish an operational-level grievance mechanism, in consultation and collaboration with relevant stakeholders

Grievance mechanisms, which should include both early warning risk-awareness and complaints systems, can help alert enterprises to deviations from their policy on deforestation in their activities or those of their suppliers or other business relationships, help them to identify and mitigate risks, including by improved communication with stakeholders, and provide a mechanism to prevent and remediate conflicts. Grievance mechanisms can also incorporate a channel for feedback and suggestions. They can be established at the level of a project, an enterprise or an industry. Enterprises can both establish their own grievance mechanisms and participate in other grievance mechanisms. It is important that grievance mechanisms be accessible, especially, where relevant, to local stakeholders including women and other vulnerable and marginalised groups. Grievances should be handled within a reasonable timeframe and anonymity respected when requested.

Suggestions for SMEs

• Decide what level of policy commitment you are prepared to adopt given national laws and international commitments, and company commitments to customers.

• Choose the definitions of “forest” and “deforestation” you want to use and the cut-off date(s). (Sectoral initiatives or other SMEs’ policies and commitments may provide useful models).

• Decide on how the policy commitment will be operationalised according to your financial and human resources.

• Make your commitments known; this can be through a written commitment or a stand-alone statement or as part of your business vision, value statement, or responsible sourcing policy.

• Engage in multi-stakeholder platforms on sustainable commodities that aim to minimise deforestation through collective action.

• Mention your limitations and risk prioritisation approach, including actions you will take if you discover that any business partner is sourcing from deforested areas.

• Reference national or regional commitments on deforestation and forest degradation in company policy.